Sole proprietors: On the losing end of Obamacare

Mary Morse lost a source of personal satisfaction this year: She no longer offers health insurance for her employees at Kwik-Kut Manufacturing Co., in upstate New York.

Her old plan was canceled because it failed to meet the minimums mandated by the federal Affordable Care Act, more commonly recognized as Obamacare.

That law also created online marketplaces, called exchanges, where business owners such as Morse can shop for new coverage. Morse says the premiums are too high for her to afford to keep splitting the tab with her employees, three full-time and five part-time.

Now, her employees fend for themselves on New York's exchange. Morse sounded dejected talking about her decision.

"I think they've gotten much inferior plans than they had, and they are paying a lot more money out of their pocket," Morse says. "We were all just very happy before …"

Morse's story emerged at a state Senate hearing on Monday, yet another example of how Obamacare appears to be hitting sole proprietors particularly hard. Evidence of their mounting frustration is surfacing as more and more small businesses begin confronting their own looming decisions about health care, a benefit that most CEOs want to provide.

"We always said there were going to be losers," said Paul Macielak, president and CEO of the New York Health Plan Association. "Clearly, sole proprietors have taken hits in terms of what they have today."

Kwik-Kut makes hand-held food choppers (seen here), shipping 200,000 of them each year. Morse, who bought the company from her father 25 years ago, says she sells to the restaurant chains Panera and Cracker Barrel, among others.

Kwik-Kut is located in Mohawk, 80 miles west of Albany. It is one of many areas upstate that has witnessed much of its legacy manufacturing industry die off or flee for other states and countries with lower taxes and lower costs for labor, utilities and other operating expenses.

Most of Morse's employees are on Medicare or their spouse's insurance. Two of them had Healthy New York, a state-subsidized plan that had to be canceled because it did not comply with Obamacare - namely, the law's requirement to have prescription-drug coverage.

Morse split premiums with those two employees, costing her $226 a month.

A comparable plan on the exchange would have been twice as expensive, she says. She says she didn't do much personal research on the small-business coverage offered on the exchange; she attended three exchange forums hosted by he chamber of commerce, and ran the math with her accountant.

"Just because you own a business, doesn't mean you're rich and have a lot of flexible income," Morse says.

Morse's employees make $10 an hour. They work up to 32 hours a week. Even with government subsidies, Morse says she worries how her employees can afford their new coverage.

"There are a lot of things they're having to pay for that they will never use," Morse says. "We're talking about a $320 gross weekly paycheck. You can't go spending $60 or $80 of that on health insurance. You gotta eat at some point."

"I don't mean to pick on Mr. Obama, but they all liked their health insurance, and they didn't get to keep it," Morse adds. She is referring to an infamous line Obama reiterated in many speeches as he touted his health insurance law.

About 5,000 small-business employees and their dependents have enrolled in health plans on the state's exchange so far. Tax credits are available for businesses with fewer than 25 full-time equivalents--and those credits are the largest for companies with fewer than 10 such people, such as Morse's company.

Donna Frescatore, the executive director of the exchange, expects small-business activity on the exchange to continue to grow.

"I expect enrollment to continue increasing because of those tax credits and the flexibility built-in for employers," Frescatore said. She testified first at the hearing, and left before Morse took her turn at the mic.

Morse says she thinks many small businesses are trying to cling to what they've got, waiting to see how things play out. She says she knows a fellow sole proprietor, a man in his 50s, who has no health insurance - for the first time in his life.

As for Morse, she still has insurance. She's on her husband's plan; he is a retiree from a local school district.